[OPE] USD rebound and food politics

Dollar gains as taste for risk wanes
By Neil Dennis
Published: September 21 2009 10:33 | Last updated: September 21 2009 22:57

http://www.ft.com/cms/s/0/64bc4542-a68f-11de-bd14-00144feabdc0.html

Because global dollar-denominated claims vastly exceed dollar currency,
relatively small movements in relatively small transaction volumes can have
big economic effects, and effects on asset values, but now think of poor
countries:

Here's a clip from UNCTAD:

UNCTAD also underlines that the problems of excessive speculative financial
activity have to be tackled in an integrated fashion, which covers the whole
financial system. Otherwise, speculation will just shift to other areas. For
example, preventing currency speculation through a new global monetary
system with automatically adjusted exchange rates might redirect the
speculation searching for quick gains towards commodities futures markets
and increase volatility there. Therefore, in a broader response to the
economic crisis, developed and developing countries need a combination of
currency stabilization with expansionary monetary and fiscal polices, the
report argues. And coordinated "countercyclical" macroeconomic policies -
that is, policies to stimulate economic demand during a downturn when demand
is falling - have to be implemented without delay. Moreover, in order to
confront the next wave of the crisis, UNCTAD stresses that it will be
critical to stabilize exchange rates by direct and coordinated government
intervention, supported by multilateral oversight. Governments should not
leave it to the market to find the "bottom line," and international
institutions should not make their emergency finance to crisis-stricken
countries conditional upon pro-cyclical policies such as public-expenditure
cuts or interest rate hikes, which would be damaging in the current
situation. http://www.un-ngls.org/spip.php?page=article_s&id_article=836

UNCTAD's advice falls on deaf ears because most people in the OECD are
pretty much indifferent if the dollar goes up 2% or down 2% - it is just
that if you live in a poor country importing a large part of its food needs,
where buying food takes 50% or more of your personal earnings, that 2%
difference in OECD exchange rates really does matter.

What do people spend on food, world wide? e.g.
http://www.everybodygoto.com/2007/10/12/what-people-eat-around-the-world/
What proportion of income is spent on food? e.g.
http://www.rfidinfo.com.cn/blog/user1/881/archives/2009/4687.htm

According to the USDA,
http://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/table7.htm in
2007 U.S. consumers spent 9.8 percent of their after-tax income on food, a
percentage that has remained constant since 2005.
The USDA reports that residents of low income countries spend, on average,
55 percent of their income on food; those of middle income countries spend
35 percent, and residents of other high income countries spent 16 percent on
food, far more than U.S. consumers.
http://www.wellsphere.com/healthy-eating-article/guide-to-good-food-shop-sustainable-spending-money/700168

The American strategic conclusion is often very simple: poor countries need
to adopt the same methods as the USA, then their food bill will go down. If
they don't, they will go hungry. But in practice it doesn't really work like
that.

Jurriaan

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Received on Tue Sep 22 16:57:50 2009